Ascott Residence Trust - UOB Kay Hian 2019-07-18: Enlarged Scale Strengthens Capacity To Generate Growth

ASCOTT RESIDENCE TRUST (SGX:A68U) | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:A68U)

Ascott Residence Trust - Enlarged Scale Strengthens Capacity To Generate Growth




Acquisition of AHT enlarges capacity to generate growth.


Actively enhancing portfolio of hospitality assets.

  • Ascott Residence Trust has completed refurbishments for Ascott Makati, Citadines Arnulfpark Munich, Citadines Trocadéro Paris, Somerset Grand Hanoi and Sheraton Tribeca New York Hotel. Management expects higher ADRs for Somerset Grand Citra Jakarta (renovation of 84 apartment units) and Element New York Times Square West (renovation of apartment units, lobby and public area) when their refurbishments are completed in 2Q19.
  • Ascott Residence Trust typically benefits from a double-digit uplift in ADRs post asset enhancement initiatives (AEI).

Embarking on maiden development project.

  • Ascott Residence Trust acquired a 60-year leasehold prime site in Singapore for S$62.4m in Sep 18. The site will be developed into a co-living property with 324 units in research and innovation hub. The property, named lyf one-north, targets the millennial segment. There are 400 companies and 800 start-ups located in the vicinity. A tender for the main contract is in progress.
  • The project is scheduled for completion in 2021. Management’s estimated yield-on-cost for this development at 6%.


ENHANCES SCALE AND DIVERSIFICATION THROUGH ACQUISITION OF AHT


Ascott Residence Trust and AHT coming together as one.


Ascott Residence Trust on course to become largest hospitality trust in Asia Pacific with combined assets of S$7.6b.

  • Ascott Residence Trust’s total assets will grow by 33%. The enlarged entity will be 1.6x the size of Regal REIT (ranked second), and 2.5x the size of CDL HOSPITALITY TRUSTS (SGX:J85) (ranked 6th). The acquisition adds 14 quality hotels in Asia Pacific (Singapore: 1, South Korea: 2, Australia: 6, Japan: 5), creating an enlarged portfolio of 88 properties with more than 16,000 units in 39 cities and 15 countries across Asia Pacific, Europe and the US.
  • It will also further diversify Ascott Residence Trust’s global portfolio with forays into new gateway cities – Brisbane and Seoul.

Enhanced diversification and resilience.

  • The merged entity will see its presence in Asia Pacific strengthen by 11% to account for 71% of portfolio valuation (where demand for business and leisure travel is robust). Freehold properties will also expand by 8% to account for 61% of portfolio valuation. No country will contribute more than 20% of gross profit for pro-forma 2018.
  • The merged entity will continue to have a balanced mix of stable and growth income (gross profit breakdown of 54% by management contracts, 36% by master lease, and 10% by management contracts with minimum guaranteed income).

Enhanced debt headroom of S$1b paves way for more organic/inorganic growth.

  • With a larger asset base and pro-forma gearing of 36.9%, debt headroom is expected to grow to S$1.0b for the merged entity with a 45% gearing limit (previously S$0.8b). Debt headroom is much higher at S$1.8b if leverage limit is lifted to 50%, which is currently being considered under the MAS’ industry consultation.

DPU accretion of 2.5%.

  • Management expects the acquisition to be DPU accretive (boosting 2018 pro-forma DPU by 2.5% to 7.34 S cents) and NAV neutral (unchanged at S$1.22/share).


INDEX INCLUSION WOULD IMPROVE LIQUIDITY AND VISIBILITY


Enhanced scale, liquidity and concentration in developed markets facilitate inclusion into FTSE EPRA NAREIT Developed Index.

  • The combined entity will see its free float increase by 50% to S$2.4b (exceeding index inclusion threshold of S$1.7b) and EBITDA derived from developed markets expand to 82% (previously: 75%) on a pro-forma basis for 2018. This will further enhance trading liquidity, potentially leading to a positive re-rating of Ascott Residence Trust’s unit price.





Peihao LOKE UOB Kay Hian Research | Jonathan KOH CFA UOB Kay Hian | https://research.uobkayhian.com/ 2019-07-18
SGX Stock Analyst Report BUY MAINTAIN BUY 1.54 UP 1.460



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